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A Level Accounting
Partnership Accounts
| Question | Answer |
|---|---|
| State three features of a Partnership | (1) 2-20 Individuals (2) Unlimited Liability (3) Each partner is responsible for their own accounts and “tax returns” |
| Give three disadvantages of a Partnership | (1) Potential for disagreement (2) Profit Sharing (3) No independent legal status |
| If no agreement is made under the Partnership Act 1890 what are the features? | (1) Shared profits and losses (2) NOT entitled to salary (3) NOT entitled to receive Interest on capital (4) NOT charged interest on drawings (can't penalise a partner for taking money out of the business) |
| If apartner gives a loan to the Partnership then what % of interest are they entitled on that loan? | If a partner gives a loan, then they are entitled to receive 5% interest on that loan that is taken from expenses in the SOCI |
| Describe how salary expense is treated in a Partnership Account | Salary is usually treated as an expense in the SOCI but for a partnership it is taken from the appropriation account. |
| If an agreement is made under the Partnership Act 1890 what are the features? | (1) Entitled to Salary (Commission)/Interest on Drawings/Interest on Capital (2) Profit and Losses shared based on agreement (Ratio/Fraction/Percentage) |
| To remember the structure for the Appropriation Account we have the acronym PIIS. What does this stand for? | P rofit for the year I nterest on Drawings (+) I nterest on Capital (-) S alary/Commission (-) Remaining Profit to be shared |
| Define Goodwill | Goodwill is the amount someone would pay over and above what the assets are worth on paper when buying a business, it could be because the company has a great reputation, which you think will lead to future sales. This is Goodwill created. |
| State which side of a Capital Account will increase the amount of Capital | Cr Side - because it has revaluation of asset (increase)/Profit made/Money put into Capital Account from Partners |
| Explain what happens to Goodwill | We do not keep the goodwill in the accounts, as it is subjective (Money Measurement). So…..in the Capital Account we need to write it off between the new partnership |
| Describe when Profit will not be included in the Capital Account | If the partners have their own Partnership Current Accounts or the Profits are split, then a Profit figure will not be included in the Capital Account |
| State which side the Balance B/d will be in a Capital Account | Cr Side |
| Explain three things that will increase the amount in a Capital Account | (1) Goodwill created (2) Revaluation of assets (Surplus) (3) Money put into Capital Account from Partnership Bank Account |
| Describe when a Capital Account will change | A Capital Account will only usually change if a partner retires/leaves or a new partner is admitted. |
| State the structure of an Appropriation Account | Profit for the year + Interest on drawings - Interest on capital - Salary commission = Remaining Profit to be shared |
| Explain what happens if Partners choose not to have Current Accounts | Partners can choose to have a current account or not (If the partners do not have a Current Account, then every transaction goes into the Capital Account) |
| State which side of a Partnership Current Account increases the amount in a Current Account | Cr Side |
| List three things that can be included on the Cr side of a Partnership Current Account | (1) Profit to be shared (2) Salary (3) Interest on Capital |
| (1) Profit to be shared (2) Salary (3) Interest on Capital all are found on the Cr side of a Partnership Current Account. But where are these figures transferred from? | These are all from the Appropriation Account |
| It is possible for a Partnership Current Account to have either a Dr or Cr Bal b/d. Explain why. | It can be on the Dr side if the partner has a negative Balance. They owe money to the business e.g. they have taken out too much money from the business |
| State which side of a Partnership Current Account drawings will be found | Dr side (it brings down the amount in the Current Account) |
| Charged Interest on Drawings/Drawings and Losses are all found on the Dr side of a Partnership Current Account. But where do the figures come from? | Charged Interest on Drawings and losses are from the Appropriation Account. Drawings are not. |
| State where the figures for (1) Profit shared (2) Salary (3) Interest on Capital in the Partnership Current Account come from | These are all from the Appropriation Account |
| When a Partner Retires a Revaluation Account is created (to revalue the assets). What happens to the Assets Revaluation Figure? | The capital accounts of the ‘old’ partners are credited with the increase in the value of the assets (revaluation figure) including a share of goodwill, in order that the partner who is leaving can receive what is owed. |
| State which side of a Revaluation Account an increase in the value of an asset would go | Cr side (Increase in asset valuation) |
| Explain which side of a Revaluation Account will show an increase in the value of an asset | Cr side |
| Explain why the Trade Receivables and Fixtures figures are on the Dr side of the Revaluation Account | They are on the Dr side because those assets lost value after being revalued. |
| Describe the structure for a Partnership Current Account | Dr Side - Drawings/Charged interest on drawings/Losses Cr side - Profit to be shared/Interest on capital/Salary |
Created by:
durquhart1
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